Unintended consequences

The Law of Unintended Consequences is a feature of all organic systems,
and distinguishes them from simple physical systems. A physical system
can usually be controlled by a simple feedback system, which monitors
some required value and adjusts some inputs to correct deviations. An
organic system, particularly a system composed of interacting human
beings, will, in the long term, not behave like this. It will evolve
mechanisms that de-couple the required output from the controlled
inputs. This general law has all sorts of corollaries in different
fields.

Incentive payments

In any organisation, if an attempt is made to improve performance by
offering bonuses for specific achievements, then behaviour will change so
as to maximise those specific achievements at the expense of any other
outputs.

This sounds good, but in practice it is hard to design achievement goals
that really reflect the performance of the organisation as a whole. For
example:

In an attempt to save cost, give every department an incentive to cut
say 10% of cost. Typically the easiest way for one department to cut its
costs is to reorganise its work so as to export cost to other departments;
in the first instance the savings are demonstrated, the extra costs become
obvious later.

Motivate your telephone enquiry staff by paying bonuses for the number
of calls handled per hour. Result is that difficult calls are deliberately
curtailed, customers rebel and go elsewhere.

Give your buyers an incentive to cut costs on raw materials. Result
is a culture encouraging high initial quotes so that a bigger cut can be
made later.

Legislation

Any new law will have effects not forseen at the time it was
enacted.

Laws intended to stop some particular activity, such as a tax fiddle,
will result in new types of tax fiddle not imagined at the time the law
was drafted.

Laws introduced in haste to counter some specific threat will be
used in other ways.

The Beer Orders appeared in the UK in the early 1990s. At the time
most pubs were owned by big brewers, and appeared to be taking advantage
of a monopoly situation. The legislation was intended to force brewers
to sell off most of their pubs, and to allow those they retained to sell
at least some beer from small independent brewers. It imagined a return
to idyllic pubs with owner landlords all selling local brews. It bombed.
Some of the brewers decided they preferred owning pubs and sold the
brewing side, most of the pubs that were sold went in bulk to new, huge
pub-owning chains. Brewers consolidated even further. Choice went down.

Never believe an authority attempting to pass a law against Y which
taken literally outlaws legal and accepted activity X, when it claims
that there is
no intention to act against X; after enactment the law will be taken as
literally as possible by the enforcement authorities, especially if it
makes their job easier; the intention of the legislators is immaterial.

For this reason, it is essential for single-interest groups to keep
up with proposed legislation and lobby for modifications where potential
side-effects are possible; many laws are promoted by single-interest groups
and they cannot be trusted to consider anything beyond their own interests.